[OPE-L:7652] Re: Moving on...

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Thu Sep 12 2002 - 10:30:34 EDT

```On Thu, 29 Aug 2002, Gil Skillman wrote:

> But whether or not I'm convinced, I originally posted this scenario asking
> if you found it relevant to our discussion.  You've indicated that you
> don't, so good enough--we might as well move on.   In anticipation of the
> next step of our discussion I went back and read your post in the archives
> that first mentioned this notion that surplus value is determined prior (in
> an analytical sense) to prices of production.  I reproduce the relevant
> passage below for reference:
>
>  >... matrix algebra does not fit with Marx's logical
>  >method.  Matrix algebra Marxism assumes that the rate of profit is
>  >determined simultaneously with prices of production and that the initial
>  >givens in Marx's theory of values and prices of production are the
>  >physical quantities of inputs and outputs.  Marx's own logic, to the
>  >contrary, assumes that the rate of profit is determined prior to prices of
>  >production, by the Volume 1 analysis of capital in general, and that the
>  >initial givens are quantities of money-capital (constant capital and
>  >variable capital), quantities of abstract labor, and the money-value
>  >produced per hour of abstract labor.
>
> Questions (with apologies if you already addressed these before I became
> aware of this exchange): (1) At what prices are the elements that determine
> "the rate of profit" evaluated, if not prices of production, and what basis
> is there for using these alternative prices, if they never actually obtain,
> even abstractly? For example, in your above statement, at what prices are
> "quantities of money-capital" and "the money-value produced per hour of
> abstract labor" evaluated, if not the prices of production referred to
> above, and on what grounds are they invoked? (2) In your reading, what
> conditions does Marx require to render valid the postulate that the rate of
> profit is determined (analytically) prior to prices of production?
>
> Posing these questions is an imposition, I realize, for which I apologize;
> but I think these issues have to be clarified up front in order to avoid
> future misunderstandings about what constitutes relevant arguments with
> respect to Marx's analysis on this point.  Thanks in advance.

Gil, these are big questions.  May I ask you to please read my two of my
papers on my interpretation of Marx's theory (as time permits), where I
discuss these questions at length? The two papers are:

"Marx's Logical Method and the Transformation Problem,"
in Moseley (ed.),  Marx's Method in 'Capital':  A Reexamination (1993)

"The `New Solution' to the Transformation Problem: A Sympathetic
Critique,"
Review of Radical Political Economics, 2000, 32 (2): 282-316.

My interpretation is derived mostly from Mattick, Rosdolsky, Carchedi, and
Foley.  Others with similar interpretations are David Yaffe and Paul
Mattick, Jr.  I will briefly discuss below the similarities and
differences between my interpretation and the "new solution" presented by
Foley and others.

It is difficult to summarize briefly, but here goes (I would be happy to
try to clarify further).  It is somewhat lengthy.

1. C and V taken as given, as quantities of money-capital

I argue that, in Marx's theory, the quantities of constant capital and
variable capital are TAKEN AS GIVEN, PRESUPPOSED, as the two components of
the initial money capital (M) invested in the first phase of the
circulation of capital to purchase means of production and labor-power,
respectively. The initial givens in Marx's theory are NOT the physical
quantities of inputs, as in Sraffa's theory.

2.  The circulation of capital

The circulation of capital is of course represented symbolically by:
M - C ... P ... C'- M'
This general formula for capital is not just a helpful illustration.  This
general formula is Marx's overall analytical framework for Marx's
theory.  The initial given in Marx's theory is the starting point of the
circulation of capital, M.  And the main purpose of Marx's theory is to
explain how this given, presupposed initial M is transformed into (M +
dM), i.e. the original capital plus a surplus-value, at the end of the
circulation of capital.  This question applies to the total surplus-value
produced in the capitalist economy as a whole.

Marx's analytical framework of the circulation of capital is fundamentally
different from Sraffa's "production of commodities by means of
commodities".  Marx's framework has to do with quantities of
money-capital.  Sraffa's framework has to do with physical quantities of
inputs and outputs.

3.  Theory of value surplus-value

Marx's theory explains the origin and magnitude of dM on the basis of the
initial givens of constant capital and variable capital, and also the
additional assumptions of the quantity of abstract labor currently
employed in the capitalist economy as a whole (L) and the money value
added per hour of labor (m).  The product of m and L yields the total
money value added (or "new value" produced) in the capitalist economy as a
whole:

MVA = m L.

The sum of MVA and the constant capital consumed (the "old value" or
"transferred value") yields the value, or the total price, of commodities:

P = C + MVA

>From this theory of total price, Marx derived the total amount of
surplus-value (S) produced within a given period of time.  This derivation
may be briefly summarized algebraically as follows:

S    =   P  -  K
=  (C + MVA)  -  (C + V)
=   MVA  -  V
=   mL   -  mLn
=   m(L  -  Ln)
S    =   mLs

where K represents the cost price of commodities (= C + V), Ln the
necessary labor-time or the time required for current labor to reproduce
the equivalent of variable capital (= V/m), and Ls the surplus-labor time.

4.  Partial explanation of C and V

At the high level of abstraction of Volume 1, Marx provisionally assumed
that the initial givens of constant capital and variable capital are
proportional to the labor-time embodied in the means of production and
wage goods, respectively.  Marx made this provisional assumption because
the price of individual commodities, and hence of groups of individual
commodities, like the means of production and wage goods, have not yet
been determined in the analysis of capital in general in Volume 1.  The
microeconomic assumption of proportionality between price and labor-time
for individual commodities is the only one consistent with the
macroeconomic labor theory of value developed in Volume 1.

However, it is important to emphasize that this provisional assumption (or
partial explanation of C and V) plays no role in the DETERMINATION of
constant capital and variable capital, and hence plays no role in the
determination of the total value and surplus-value, which is the main
conclusion of Volume 1.  The magnitudes of constant capital and variable
capital are not determined as proportional to the labor-times embodied in
the means of production and wage goods, respectively.  The physical
quantities of means of production and wage goods play no role in Marx's
theory of value and surplus-value.  Instead, value and surplus-value are
determined (in part) by the magnitudes of constant capital and variable
capital, which are taken as given, as quantities of money-capital invested
to purchase means of production and labor-power in the first phase of the
circulation of capital, whether or not these quantities of money-capital
are proportional to the labor-times embodied in the means of production
and wage goods.

5.  Theory of prices of production

Marx's theory of prices of production in Volume 3 can be then represented
algebraically by the following simple equation:

pi =  ki +  r ki

where pi stands for the price of production of each commodity, ki for the
cost price of commodities in each industry (equal to the sum of constant
capital and variable capital), and r for the rate of profit (ignoring here
the distinction between the stock and flow of capital).

In this equation, the ki for each industry are TAKEN AS GIVEN sums of
money-capital, just like the total quantities of C and V are taken as
given in the theory of the total surplus-value in Volume 1 (the sum of the
former is obviously equal to the latter).  This is the reason why constant
capital and variable capital DO NOT CHANGE, or do not have to be
transformed, in the transformation of values into prices of production,
i.e. in the transition from the macro analysis of the total surplus-value
in Volume 1 to the micro analysis of prices of production in Volume
3:  because the same quantities of constant capital and variable capital
are taken as given in both of these levels of abstraction.  The magnitudes
of constant capital and variable capital are not first determined as the
values of the means of production and wage goods, and then later
transformed into the prices of these same means of production and wage
goods, as in the Sraffian interpretation.  Instead, the same quantities of
money-capital used to purchase the means of production and labor-power are
taken as given in both Volume 1 and Volume 3.  In other words, these given
quantities of money constant capital and variable capital "remain
invariant" in the transition from the macro theory of the total
surplus-value to the micro theory of prices of production.

In this micro determination of prices of production in Volume 3, the
general rate of profit (r) is taken as given, as PRE-DETERMINED by the
prior macro theory in Volume 1.  The rate of profit is equal to the total
surplus-value for the economy as a whole (determined in the Volume 1 macro
theory) divided by the total capital invested (constant capital plus
variable capital, which, as we have seen, are taken as given in Volume
1); i.e. r = S / (C + V).

6.  More complete explanation of C and V

After the determination of prices of production, the initial givens of
constant capital and variable capital can now be more fully explained as
equal to the prices of production of the means of production and the means
of subsistence, not equal to their values.  The given magnitudes of
constant capital and variable capital do not change from Volume 1 to
Volume 3, but these given magnitudes can be more fully explained in Volume
3 than in Volume 1.

7.  Comparison with the "new solution"

My interpretation is similar to the "new solution" (presented in recent
years by Foley and Dumenil and others) in the sense that the "new
solution" also takes VARIABLE CAPITAL as given, as a quantity of
money-capital, which does not change in the transformation of values into
prices of production, as in my interpretation.

However, the "new solution" is different from my interpretation in the
sense that it does not take CONSTANT CAPITAL as given, but instead derives
constant capital from given physical quantities of inputs, first as the
value of the means of production and then as the price of production of
the means of production, as in the Sraffian interpretation of Marx's
theory.

Therefore, I argue that there is an fundamental inconsistency in the "new
solution" between these two different methods of determination of the two
components of the initial money-capital (M) at the beginning of the
circulation of capital.  One component (variable capital) is taken as
given and the other component (constant capital) is derived from given
physical quantities.  I argue that these two quantities of the initial
money-capital should be determined IN THE SAME WAY, either taken as given
or derived from given physical quantities.  Marx never hinted that these
two components of the initial money-capital should be determined in
fundamentally different ways.

Therefore, I conclude that the new solution "only goes halfway" in
correcting the Sraffian misinterpretation of Marx's theory, and that it
should instead "go all the way" by also taking constant capital as given,
as quantities of money-capital.

8.  Gold and the transformation of values into prices of production

The above equation for the determination of prices of production does not
apply to gold (the money commodity) because the money commodity has no
price and hence no price of production.  The result of the valorization
process in the gold industry is not a commodity with a price, which still
has to be converted into a quantity of money through sale, but is instead
already a quantity of money.  This quantity of money cannot change in the
transformation of values into prices of production of other commodities.

Furthermore, the inputs of  constant capital and variable capital in the
gold industry, like the inputs of constant capital and variable capital in
all other industries, are TAKEN AS GIVEN, as the sums of money invested in
the first phase of the circulation of capital in the gold industry to
purchase means of production and labor-power.  These given quantities of
constant capital and variable capital in the gold industry, again like in
all other industries, DO NOT CHANGE in the transformation of values into
prices of production.

Therefore, since the "price" of gold cannot change (since gold has no
price) and since the inputs of constant capital and variable capital are
taken as given and assumed not to change, it follows that the amount of
surplus-value cannot be transformed into profit as a different magnitude
in the transformation of values into prices of production.  That is why I
have argued that there is no "sharing of surplus-value" between the gold
industry and other industries.  The gold industry neither gains nor loses
in the redistribution of surplus-value by means of prices of production.

This is my answer to Gil's third point in his (7611), the reason why,
according to Marx's theory, there is no "sharing of surplus-value" between
the gold industry and other industries, which implies that the rate of
profit in the gold industry and the rate of profit in other industries are
determined independently of each other.

Marx assumed that the composition of capital in the least productive gold
mines was below the social average composition of capital (as with mining
and agricultural industries in general).  Under the further usual
assumption of equal rates of surplus-value between the gold industry and
all other industries, the conclusion that there is no "sharing of
surplus-value" between the gold industry and other industries implies that
the rate of profit in the gold industry is greater than the general rate
of profit in other industries.

Marx argued that, in mining and agricultural industries in general, at
least part of the extra surplus-value produced would be appropriated by
the landlords and mine owners in the form of absolute rent.  In mining and
agricultural industries in general, the amount of absolute rent depends in
part on the level of demand.  However, this is not true of the gold
industry, because the money commodity has no price (as I have discussed in
7368).  In this case, all of the extra surplus-value produced in the gold
industry remains in the gold industry and the profit plus rent
appropriated is equal to the surplus-value produced - which implies that
no "sharing of surplus-value" and independent determination of the rate of
profit in the gold industry.

Gil (and others), I look forward to your response.  Thanks again for this
interesting and productive discussion.

Comradely,
Fred
```

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